You have heard so much about the word – investor and you have wondered what it truly means. May be you already know what it means in everyday use of the word. The purpose of the article is not to provide a lesson in English language. Therefore, we are not looking at any other use of investor as an English world.
Our only interest is what it represents in the financial world, and that is where we go right away. Wikipedia defines investor as, “a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest)”.
On the hand, Investopedia defines investor to mean, “an individual or entity that utilizes its capital or the capital of others with the goal of receiving a return.” Another interesting but much related definition is given by google online dictionary. It says that an investor is “a person or organization that puts money into financial schemes, property, etc. with the expectation of achieving a profit.”
There are many other sources that have defined the word, investor, but none defers from the above two basic definitions. Every other attempt agrees with the cardinal principles contained in both the Wikipedia and Investopedia`s, as well as Google`s concept of who an investor is.
These cardinal principles are as follows:
Investor is a person
This could be a natural or corporate person, which Investopedia refers to as “entity”. As an investor, you can invest your own money in your own name as a natural person or through a corporate person/registered company or any form of business entity. This makes you a personal investor.
In addition, you can operate in the market as a professional investor, own and operate investment brokerage company as an institutional investors. This way, you can invest for yourself and also for others. Those who invest for others are those who run investment brokerage companies behind multiple types of investment vehicles we hear about today, such as mutual funds and index funds, which invests in stocks, bonds, ETFs, options, etc.
Investor invests (gives) something
What you are investing or given out could be anything, but it must be something useful, which serves as a factor of production. It could be money, land, time, expertise, etc, just name it, but in reality investor`s currency or medium of exchange is usually money and financial instruments.
It has to be something or a seed that could help in the creation of wealth in any form. This is what is commonly referred to as capital in both definitions by Investopedia and Wikipedia. Google dictionary is more directly and referred to it as money.
In most cases what you are investing is usually in the form of money. That is the most common medium of capital injection in the form of investment. This is especially where the investor chooses investment in stocks, which is far more popular investment vehicle.
Other investment vehicles include bonds, mutual funds, real estate, commodities, options, exchange-traded funds (ETFs), foreign exchange (forex), index funds, gold, silver and futures.
Investor expects something in return
What differentiates investment from charity is the fact that an investor is putting his/her money down for the purpose of a pecuniary interest and there is no pretense about it. On the other hand, in charity, giving is completely selfless without any form of expectation by the giver.
So, an investor is investing for personal profit, which in most cases come as a monetary return on investment. Invariably, a good investor is one who knows or invests with good knowledge of how to determine sources of high return on investment (ROI).
For investment in bonds, which are mostly issued by governments and corporations, an investor receives returns in form of coupon. On the other hand return from investment in stocks come in the form of dividends, which companies declare periodically or capital gains, which accrues over a period of time.
In synthesis, an investor orchestrates the strategic placement of capital, akin to planting a seed, with the hope of reaping a bountiful harvest over time. This transformative process is synonymous with a gestation period, during which the investment matures before culminating in a fruitful outcome. Notably, this temporal aspect holds a vital role, often distinguishing investors from traders.
Unlike traders, who chase short-term profits, investors embrace a long-term perspective. This deliberate patience allows capital gains to burgeon substantially. Investment is an art that demands both strategic placement and patience, forming a bridge between the present allocation of resources and the future fruition of wealth.
In essence, an investor occupies a realm where foresight and patience interlace. This perspective reveals an intricate dance, where financial resources take on a life of their own, maturing into a realm of prosperity. The journey of an investor is one of cultivation, where the soil of capital and the waters of time are harmonized to yield a landscape of growth and reward.
In conclusion
Therefore, simply put an investor is one who is able to put capital together and sow/invest it as seed through an act called investment for a greater harvest in the form of return in due course of time.
The highlighted phrase (in due course of time) is the gestation period during which the investment must pass through a maturity process before it becomes ripe for harvesting.
That is one part of investment that was not abundantly indicated in the two definitions from Wikipedia and Investopedia, as well as the online dictionary of Google. We have filled the gap and we hope you have benefited from our working definition of who is an investor.
Investors are long term focused, thereby allowing enough time for capital gains to accrue substantially. Investing requires time and patience. That is the cardinal difference between an investor and a trader. Traders seek for short term profit and thereby losses out on taking strategic positions in the market.
